Mortality Progression Methods and Systems

ABSTRACT

Methods and systems for preparing improved mortality tables for use with life insurance and other financial products are described herein. The improved mortality tables described herein account for progression over time of insureds from one underwriting class to another, e.g., based on deteriorating health over time. An insured who is in a “preferred” class at the time of initial underwriting might not still qualify for “preferred” status in 5 years, or even the next year. By creating a system of linear equations that predict the composition of a group n years after underwriting, insurance (and other financial products) providers can calculate more definite costs for pricing financial products based on the estimated or expected transition from one underwriting class to another.

This application is a continuation of U.S. application Ser. No.13/949,710, filed Jul. 24, 2013, entitled “Mortality ProgressionsMethods and Systems,” which is a continuation of U.S. application Ser.No. 13/708,153, filed Dec. 7, 2012, entitled “Mortality ProgressionMethods and Systems”, now U.S. Pat. No. 8,521,568 issued Aug. 27, 2013,which is a continuation of U.S. application Ser. No. 12/482,032, filedJun. 10, 2009, entitled “Mortality Progression Methods and Systems, nowU.S. Pat. No. 8,355,931 issued Jan. 15, 2013, which claims priority toprovisional U.S. Application Ser. No. 61/060,499, filed Jun. 11, 2008,and having the title “Mortality Progression,” each of which is hereinincorporated by reference.

FIELD

Aspects described herein generally relate to computer systems andactuarial science. More specifically, aspects relate to methods andsystems that provide enhanced mortality progression tables to moreaccurately reflects risk groups of those insured with life insurance,thereby 1) enhancing a providers' ability to more accurately determineappropriate pricing and ratings when offering such life insurance, and2) enhancing the ability of a provider to project the portion of itsbook of business that is in a current underwriting classification overtime.

BACKGROUND

In the insurance industry mortality tables (also known as life tables oractuarial tables) are tables that show, for a person at each age, whatthe probability is that the person will die before the person's nextbirthday. Mortality tables are created by looking at large groups ofpeople and determining the probability of people within a group dyingwithin a year. Mortality tables can reflect the probability of survivingany particular year of age, the remaining life expectancy for people ofvarious ages, the proportion of the original birth cohort still aliveand estimates of a cohort's longevity characteristics, among otherfactors.

Historically, mortality tables have been created primarily by age andsex for whole societies, but for insurance purposes mortality tables maybe divided by underwriting class. Common naming would split people firstbetween classes of smoking and non-smoking, then between a preferredclass, a standard class, a sub-standard class and finally a “decline”class representing people who would not be insured at all. Preferredclasses represent people whose health and fitness are above average andwould have a better than average expected mortality. Standard classesrepresent people with average health and builds. Substandard classesrepresent people with known health problems or other physical problemsthat would predict a poorer expected mortality. The decline classrepresents those people having a severe health problem that renderstheir mortality very high or very unpredictable. Sometimes a “deferred”class is used in place of “decline” for people who are recovering from aproblem where a good outcome would make them insurable after a period oftime.

Insurance policies are underwritten at policy inception. Underwritingrefers to the process that an insurance company uses to determine theeligibility of a customer to receive its products. Insuranceunderwriters evaluate the risk and exposures of the prospective clientsand determine how much coverage the clients should receive, how muchthey should pay for it, and even if they should insure the client in thefirst place. Underwriting involves measuring risk exposure anddetermining the premium necessary to insure that risk.

BRIEF SUMMARY

The following presents a simplified summary in order to provide a basicunderstanding of some aspects described herein. This summary is not anextensive overview, and is not intended to identify key or criticalelements or to delineate the scope of the claims. The following summarymerely presents some concepts in a simplified form as a prelude to themore detailed description provided below.

To overcome limitations in the prior art described above, and toovercome other limitations that will be apparent upon reading andunderstanding the present specification, some aspects described hereinare directed to preparing improved mortality tables for use with lifeinsurance and other financial products. The improved mortality tablesdescribed herein account for progression over time of insureds from oneunderwriting class to another, e.g., based on deteriorating health overtime. An insured who is in a “preferred” class at the time of initialunderwriting might not still qualify for “preferred” status in 5 years,or even the next year. By creating a different type of mortality tablethat predicts the composition of a group n years after underwriting,insurance (and other financial products) providers can calculate moredefinite costs for pricing financial products. The improved mortalitytables may be expressed using a system of equations or as individualprogression tables for an age-underwriting class combination.

A first aspect provides a method for generating improved mortalitytables by identifying an expected mortality based on an underwritingclass for people of a same age that have recently been underwritten fora financial product, and then analyzing actual death claims to identifyactual mortality of the people at a predetermined point in the future.Next, the method determines a difference in mortality between the actualmortality at the predetermined point in the future and an expectedmortality as if the people were newly underwritten at that predeterminedpoint in the future, where a portion of the people have experienced adeterioration in health since original underwriting such that theirmortality will be higher at the predetermined point in the future thanwould otherwise be expected had their health not deteriorated. Theprevious steps are for each of a multiple ages, underwriting classes,and for multiple different predetermined points in the future. Once thedata has been gathered, a system of equations is created based on thedetermined differences in mortality, where the system of equationsmodels the expected movement of insureds from one underwriting class toanother over time to explain the observed differences in mortality.

In some aspects, the analyzing step may be performed using an existingselect and ultimate mortality table to obtain the actual mortality ofthe people at the predetermined point in the future. According to otheraspects described herein, the weighted average of mortality based on theprogression table approximates the actual observed mortality for anage-underwriting class combination. In addition, a separate progressiontable may be generated for each combination of age and underwritingclass based on the system of equations.

The systems and methods described herein may be used with a variety offinancial products, including but not limited to individual lifeinsurance, group life insurance, accident insurance, disabilityinsurance, long term care insurance, annuitant groups, and morbidityanalysis.

The improved mortality tables and progression tables may be used byfinancial products provider to the calculate costs for a term conversionlife insurance product, a guaranteed issue life insurance policy, a costbased on a lapse rate, and a cost associated with a guaranteedinsurability option rider, to name a few.

Another aspect described herein provides methods and systems, includingcomputer memory devices storing computer executable instructions that,when executed by a processor, cause a computer to perform the describedmethods, for performing a cost analysis by determining an originaldistribution of mortality for each of a plurality of underwritingclasses of a plurality of people underwritten for a financial product,and projecting a future distribution of mortality corresponding to eachoriginal distribution based on a predetermined set of progression tablesthat model an expected movement of insureds from one underwriting classto another over time. Once the future distributions are projected, theyare analyzed to predict a percentage of insureds in each underwritingclass likely to accept a product offering associated with the financialproduct, and then a cost for the product offering is generated based onthe predicted percentages of insureds in each underwriting class likelyto accept the product offering.

The financial product may be a life insurance product, and the productoffering may be a guaranteed insurability option rider or a termconversion of the life insurance, among other products and offerings.

BRIEF DESCRIPTION OF THE DRAWINGS

A more complete understanding of the present disclosure and theadvantages thereof may be acquired by referring to the followingdescription in consideration of the accompanying drawings, in which likereference numbers indicate like features, and wherein:

FIG. 1 illustrates a computer and network architecture that may be usedaccording to one or more illustrative aspects described herein.

FIG. 2 illustrates a method for creating a mortality table according toone or more illustrative aspects described herein.

FIG. 3 illustrates a sample mortality table created according to one ormore illustrative aspects described herein.

FIG. 4 illustrates a sample transition table created according to one ormore illustrative aspects described herein.

FIG. 5 illustrates a process of using the improved tables of FIG. 3 andFIG. 4 with a Term Conversion insurance policy according to one or moreillustrative aspects described herein.

FIG. 6 illustrates a process of using the improved tables of FIG. 3 andFIG. 4 with a Guaranteed Issue insurance policy according to one or moreillustrative aspects described herein.

FIG. 7 illustrates a process of using the improved tables of FIG. 3 andFIG. 4 to determine Lapse Rates according to one or more illustrativeaspects described herein.

FIG. 8 illustrates a process of using the improved tables of FIG. 3 andFIG. 4 to generate a GIO Rider estimate according to one or moreillustrative aspects described herein.

DETAILED DESCRIPTION

In the following description of the various embodiments, reference ismade to the accompanying drawings, which form a part hereof, and inwhich is shown by way of illustration various embodiments in whichaspects may be practiced. It is to be understood that other embodimentsmay be utilized and structural and functional modifications may be madewithout departing from the scope of the present disclosure.

One or more aspects described herein may be implemented in dataprocessing systems, either alone or in combination with other dataprocessing systems interconnected via one or more networks, e.g., asillustrated in FIG. 1. FIG. 1 illustrates one example of a networkarchitecture and data processing device that may be used to implementone or more illustrative aspects described herein. Various components103, 105, 107, and 109 may be interconnected via a network 101, such asthe Internet. Other networks may also or alternatively be used,including private intranets, LANs, WANs, PANs, SANs, and the like. Thecomponents may include an insurance rate server 103, web server 105, andclient computers 107, 109. Rate server 103 provides overall control andadministration of providing improved mortality rates to users (e.g.,insurance underwriters, actuaries, etc.) according to aspects describedherein.

Rate server 103 may be connected to web server 105 through which usersinteract with and obtain mortality data and/or rates. Alternatively,rate server 103 may act as a web server itself and be directly connectedto the Internet or other network. Rate server 103 may be connected toweb server 105 through the network 101 (e.g., the Internet), or via someother network (not shown). Users may interact with the rate server 103using remote computers 107, 109, e.g., using a web browser to connect tothe rate server 103 via one or more web sites hosted by web server 105.Alternatively, remote computers 107, 109 may interact directly with rateserver 103 using special applications, e.g., in a client-serverarrangement. Servers and applications may be combined on the samephysical machines, and retain separate virtual or logical addresses, ormay reside on separate physical machines. FIG. 1 illustrates but oneexample of a network architecture that may be used. The specific networkarchitecture and date processing device used may vary, and are secondaryto the functionality that they provide, as described herein.

Each component 103, 105, 107, 109 may be any type of known computer,server, or data processing device. Rate server 103, e.g., may include aprocessor 111 controlling overall operation of the rate server 103. Rateserver 103 may further include RAM 113, ROM 115, network interface 117,input/output interfaces 119 (e.g., keyboard, mouse, display, printer,etc.), and memory 121. Memory 121 may further store operating systemsoftware 123 for controlling overall operation of the data processingdevice 103, control logic 125 for instructing rate server 103 to performaspects as described herein, and other application software 127providing secondary, support or other functionality which may or may notbe used in conjunction with aspects described herein. The control logicmay be referred to herein as the rate server software 125. Functionalityof the rate server software may refer to operations or decisions madeautomatically based on rules coded into the control logic, or mademanually by a user providing input into the system. Memory 121 may alsostore data used in performance of one or more aspects described herein,including mortality table data 129 and progression table data 131.

The functionality of data processing device 103 as described herein maybe spread across multiple data processing devices, for example, todistribute processing load across multiple computers, to segregatetransactions based on geographic location, insurer, insured, type ofinsurance, etc. In addition, one or more aspects may be embodied incomputer-usable data and computer-executable instructions, such as inone or more program modules, executed by one or more computers or otherdevices. Generally, program modules include routines, programs, objects,components, data structures, etc. that perform particular tasks orimplement particular abstract data types when executed by a processor ina computer or other device. The computer executable instructions may bestored on a computer readable medium such as a hard disk, optical disk,removable storage media, solid state memory, RAM, etc. As will beappreciated by one of skill in the art, the functionality of the programmodules may be combined or distributed as desired in variousembodiments. In addition, the functionality may be embodied in whole orin part in firmware or hardware equivalents such as integrated circuits,field programmable gate arrays (FPGA), and the like. Particular datastructures may be used to more effectively implement one or more aspectsdescribed herein, and such data structures are contemplated within thescope of computer executable instructions and computer-usable datadescribed herein.

The impact of underwriting fades over time. A person who is underwrittentoday and classified preferred has a better expected mortality than aperson who was underwritten three years ago and classified preferred atthat time. This is captured by select and ultimate mortality tables thatpredict that a group of people who are underwritten (with thesubstandard lives excluded) will gradually experience higher mortality,getting closer and closer to the population mortality over time. Thisgrading off of the underwriting effect typically happens over a 15+ yearperiod of time. Other embodiments or aspects may use different mortalitylevels or ranges other than or in addition to “select” and “ultimate”mortality groups.

Current mortality models do not capture the dynamics of the mortalityembedded within the group. Although the average mortality increases forthe group, it is not that every member of the group experiences slightlyhigher mortality. Many of the people underwritten as “preferred” threeyears ago would still qualify as “preferred” today. Their expectedmortality is no different from a person underwritten for the first timetoday. The increased mortality is due to the decline of other people inthe group. Some of the people who were preferred three years ago wouldqualify as “standard,” “substandard” or even be “declined” today. Theincrease in mortality observed is a weighted average of the mortalityacross these different classes based on the percentage of the people whowould now fall in those classes if underwritten today. As insurancecompanies cannot underwrite after issue, they are still classified aspreferred in the contract, but they no longer would qualify ifunderwritten today. Over time, more and more people experience healthproblems that cause the mortality expectation to deviate from preferred,so the overall preferred mortality decreases as the group deterioratesover time.

As stated above, current mortality tables do not account for changes inunderwriting class over time. Aspects of the inventive model do accountfor the changes in underwriting class explicitly instead of implicitlywithin the mortality rates. The overall mortality rates may still matchthe mortality observed from decades of research, but the composition ofthe underlying group makes a difference to the pricing of many futurepolicies and policy features.

The improvements in the mortality tables provided by aspects describedherein lead to smaller error terms and more accurate mortalityestimates, which in turn yield supportable pricing and cost information.In older processes, large error terms and inaccurate data could easilynegate any profit margin yielded by the option or product.

Because the mortality tables reflect the changes in underwriting classover time, pricing of the products that use the mortality tables isimproved. The pricing better reflects and accounts for true futuremortality. Underwriting is typically done only at issue, so a betterunderstanding of how mortality changes over time is valuable for pricingand understanding mortality experience over time.

The improvements to pricing may affect a variety of life insuranceproducts including (but not limited to): Term conversion, Projection ofGuaranteed Issue mortality, projection of the impact of high lapserates, and Guaranteed Insurability Option Riders (GIO Riders), amongothers.

A current issue in determining price and cost information related tovarious life insurance products is the identification of the percentageof people that will exercise a particular option (e.g., term conversion,guaranteed insurability, etc.). The improved mortality tables allow theuser (e.g., a life insurance provider) to estimate utilization of thevarious options based on underwriting class rather than based on thepopulation as a whole. Improved estimates of utilization result inimproved pricing of options and insurance products.

As stated above, the improved mortality tables allow for betterestimates of mortality, smaller error terms, and the ability to breakdown mortality data by underwriting class or risk category. Once themortality data has been segmented into the underwriting class/riskcategory, each risk category can be tested and analyzed separately toensure that the utilization, price, and cost information is accurate,which is an improvement over previous testing and analysis based on thepopulation as a whole.

According to an illustrative aspect, the process to improve mortalityprojections used within the model includes creating a progression table,which may also be referred to as a transition table. A person who startsas a preferred risk would have a probability of moving to any of 5categories in any given year: staying preferred, or change to one ofstandard, substandard, decline or dead (a different number of categoriesmay be used, based on need). A person who has been moved to a newcategory over time would have a different probability of subsequentstatus changes consistent with other people who are in that status. Theprocess might not have a memory of past status, that is, a person who isstandard in year 6 would be treated the same whether they used to bepreferred, standard or substandard at issue. However, in otherembodiments a person's historical status might be taken into account.

An illustrative method for developing an improved mortality table isprovided with reference to FIG. 2. In step 201, a user, e.g., e.g., aFellow of the Society of Actuaries (FSA) whose duties include mortalityanalysis, starts with an existing/known mortality table. This tablepreferably includes select and ultimate mortality rates for each age andinitial underwriting class. The improved mortality progression modeltypically includes the same underwriting classes as the standard tableused as the benchmark for the development of the transition table(discussed below). This initial mortality table is created by analyzingthe health and characteristics of each person on whom the table is basedto determine the probability that the person will die before his or hernext birthday, and averaging the data according to underwriting class.The mortality table can thus be thought of as a translation of aperson's health into a quantifiable measure regarding the probability ofdeath before their next birthday, or the year-to-year probability ofdeath for the rest of his or her insured life. The translated measurethus provides an improved aggregate representation of mortality risk.

In step 203, for each underwriting class, each year of issue and eachyear of duration after issue, compare the mortality rate for a newlyunderwritten life with the mortality for a person underwritten when thepolicy was issued. The difference between these two rates is theadditional mortality resulting from the change (generally deterioration)in the mortality since issue. As a result, the mortality for the agedgroup should be a weighted average of the mortality for the participantsin the group as if newly underwritten. This creates a linear equationfor each age/duration combination in which we are trying to determinethe percentage of people in each current mortality group. Thesepercentages are less than or equal to one and sum to one. These linearequations are not independent. The probability of a person moving fromone underwriting class to another would be independent of the time sinceissue. Instead, it depends on the current underwriting class and ageonly. Therefore, there may be multiple times that a particularprobability of transition appears in different equations. Stateddifferently, an individual's history is irrelevant. The probability thatthe individual will be in the same health, worse, or dead within oneyear is not impacted by how that individual got to his or her presentstate of health. The only relevant question is the probability that theindividual will change health status within 1 year.

In step 205, the user creates a system of simultaneous equations, e.g.,a system of linear equations, that incorporates all of these variables,and the system of equations may be represented in the new mortalitytables. Depending on the number of underwriting classes and ages, theremay be two issues that develop. First, the resulting equations may beinconsistent. In this case, in step 207 a least squares or other metricof fit should be applied and the transition table probabilities set tominimize the value of the metric. Keeping the total number of deathsconsistent with the table is a priority in the optimization process. Inaddition, the progression of similar values such as the probability ofmoving from Standard to Table 2 should form a smooth pattern across theages. Thus, as a person moves from one age to the next, the chance ofhaving a health impairment should not swing wildly from one year to thenext. Instead, the probability is expected to increase gradually as theperson ages.

The second issue that may develop is that resulting equations may leaveroom for multiple solutions. The user in step 207 may apply his or herprofessional judgment to arrive at a solution. For example, data withregard to the distribution of people across the underwriting classesafter 10 years might be applied by age to create an additionalconstraint. Also, some transitions might be determined using “rules ofthumb” such as setting the probability of underwriting class improvementto zero or setting the probability of moving to a highly substandardunderwriting class to a constant value. Alternatively, an additionalformula may be imposed to assure smoothing of consistent values asmentioned with respect to resulting inconsistent equations, above.

In step 209, a bootstrapping process starting at the end of themortality table and working toward the younger ages may be applied toconstruct the mortality table from the system of linear equations. Ateach new age, the transition tables for all later ages would have beenset. This method might be easier to execute, but may require more workto the graduation process to create a smooth data set.

In step 211, a set of progression tables are generated that contain theprobability of moving from any age and underwriting status to eachunderwriting status (or death) at the next age. Each progression tablemay correspond to a specified age within a specified underwriting class.Thus, there may one progression table for 40-year olds in the preferredunderwriting class; one progression table for 41-year olds in thepreferred underwriting class, one progression table for 40-year olds inthe standard underwriting class; etc.

In step 213, a graduation process may be performed to assure that thesevalues vary in a consistent manner across the ages if this was not aconstraint imposed in the previous step. As with all graduations, thiswill require judgment (again, by one of ordinary skill in the art, suchas an FSA with experience working with mortality tables) about therelative weight to give fit versus smoothness. Because the originalmortality table may have been graduated using different criteria, theresulting values might not be smooth when judged by the new standards.The graduation process may need to be rigorous to create a reasonableset of data for the new mortality progression table.

In an example provided in FIG. 3 and FIG. 4, 10,000 people enter theprocess as the highest type of preferred risks. After 10 years, about80% are still in the preferred range, nearly 10% standard risks, about10% in the substandard range, 1-2% no longer insurable and about 1%dead. This is the result of the process working each year for 10 yearsand people gradually changing status. For example, the probability ofremaining in the highest category is 95% each year. However, after 10years of 5% leaving each year, the result is only 61% remaining in thestatus. (Note: while this example only uses five (5) status levels,other models may subdivide into more status levels, and/or the preferredand substandard levels may be further subdivided into more levels.)

The probability of death across the entire group should be consistentwith traditional select and ultimate mortality tables. Also, theprobability of death for a newly underwritten life under traditionalmethods should be the same as the probabilities of death for people whoare determined to fall into that same category by this process. Thiscreates many constraints to the process of solving for the transitiontable. A smoothing process that assumes that the transition factorschange gradually and consistently from age to age is likely to allow areliable model to be developed from available data.

FIG. 3 illustrates a sample mortality table according to an illustrativeaspect. FIG. 4 illustrates a sample transition table according toanother illustrative aspect. The mortality table in FIG. 3 does notadjust mortality for increasing age, just for underwriting classchanges. FIG. 3 also assumes that the transition table shown in FIG. 4is constant by age, however, it is possible that a transition table maydiffer by age. The transition table is preferably constant byunderwriting class with the initial lives being the item that changes.For example, the initial lives could be all Preferred (P) instead ofPreferred Elite (PE). In addition, mortality for a Guaranteed Issue(GI)/Simplified Issue (SI) group may be projected based on the mix ofinitial class. The S&U mortality rates may provide a touch-stone for themodel because it needs to replicate those rates consistently.

The death rates in the transition table of FIG. 4 are those from thefirst year of a select table because they are assumed to apply to aperson as if that person had been newly underwritten. The mortalityrates that result from the model are the qx+[d] where d is the yearsfrom underwriting. The transition probability table may be unique by ageand applied on an attained age basis. For example, if the table in FIG.4 related an insured group that was age 40 in the initial year, thetransition table for 41 may be applied in the second year, 42 in thethird, etc. In addition to varying the mortality, the probabilities of“downgrade” may increase with age.

One or more aspects of the inventive transition/progression table(s)described herein and created using the above processes may be used toimprove known mortality tables or may be used to provide better pricingbased on a better approximation of progression dynamics. The followingexamples illustrate processes, systems, and products that mayincorporate or benefit from using the improved mortality table(s).

Example 1 Term Conversion

FIG. 5 illustrates a prior art term conversion process on the left withan improved term conversation process according to aspects describedherein on the right. Term conversion is an important benefit within aterm insurance product. Generally speaking, the owner of the policy hasthe right to exchange or convert that policy to a permanent lifeinsurance policy on the same rate basis as the original policy withinnew underwriting. This allows them to extend what may have been a 20year commitment to a rate basis to a lifetime commitment for theinsurance company or insurance provider.

The current practice for term conversion is not explicit. The processinvolves estimation and broad ranges with high error margins. Thisprocess of estimation results in a cost estimate that is unsupportabledue to lack of specific data. The improved mortality tables according toaspects described herein increase the accuracy of the term conversionprocess. Smaller error terms and more accurate estimates yield asupportable pricing number. The improved process leads to a cost numberthat is supportable for each original underwriting class.

For example, if one examines a group of term insurance customers after19 years, (a year before their term policy expires), focusing on thegroup that was classified as preferred, some of the people will still bepreferred and the conversion option does not offer anything of value.Some customers will be standard and the term conversion option will havesome value if those customers still have a need for life insurance,because those customers will be able to convert their policies as ifthey were still “preferred” status. However, for the substandard anddecline categories, the conversion option will have so much value thatit would be worth doing the conversion even if the person had noremaining need for life insurance. It is clear that a person pricingsuch a benefit would be able to do a better job if they could estimatethe number of people who would be in each group after 19 years. Theenhancements to the mortality tables make the pricing for termconversions much more accurate.

A problem with term conversion pricing is that the probability and costof term conversion both vary with the health status of the insured.Today, the mortality models do not produce a distribution of lives indifferent health conditions, but only predict the aggregate mortality ofthe group. This leaves the actuary with only rough rules of thumb forcalculating the cost of the feature.

The mortality progression model described herein produces an explicitdistribution of lives into the various underwriting classes. From there,the actuary can apply probabilities suitable to each group for theprobability of using the term conversion option. Also, the estimatedcost (in excess claims) of term conversion can be calculated for eachgroup. The result is that a cost of term conversions can be explicitlycalculated from the model. Also, the cost of term conversion can beexplicitly calculated for different initial underwriting groups. Thecost for preferred lives can be expected to be different from the costfor insureds who start as standard risks.

In addition to pricing a particular group of insured lives, themortality progression model allows the actuary to examine the cost ofdifferent types of term conversion offers. For example, some policiesallow the insured to convert from a term policy to another type ofpolicy. The offer to change policy types is typically bounded by anumber of years. The longer the offer is outstanding to the insured, themore expensive it is to the insurance company making the offer as over alonger time horizon more insureds in a group will fall into poor healthand exercise an option to convert a term policy to a more permanent typeof policy. The improved mortality tables described herein allowactuaries to determine the cost of different lengths and types of termconversion offers. The mortality progression model also allows theactuary to see the impact of time on the number of people whose healthwould deteriorate and would benefit financially from a term conversion.Also, the relationship of the term conversion to the end of the levelpremium period can influence the utilization of the option. Finally, theterm conversion can guarantee the original underwriting class or couldprovide for lesser guarantee of standard class conversion. The latter iscommon in group insurance and has a material impact on the cost andlikelihood of conversion.

Example 2 Projection of Guaranteed Issue Mortality

FIG. 6 illustrates a prior art Guaranteed Issue process on the left withan improved Guaranteed Issue process according to aspects describedherein on the right. When risks are taken across many differentunderwriting classes at issue, as is the case with guaranteed issuemortality, the trend in future mortality does not follow normal rules.This model takes the mix of people introduced at the beginning of theprocess and projects them forward as easily as it does for a block ofregularly underwritten business.

Life insurers see different behaviors for normal standard versusguaranteed issue standard (“normal standard” and “guaranteed issuestandard” are different levels of risk associated with an insured—otherlevels may alternatively be used). They have the same average mortalitybut the two groups behave differently over time. Currently GuaranteedIssue is rated based on Normal Standard which does not reflect the truemake-up and behavior of the guaranteed issue standard. The improvedmortality tables allow for more accurate price and cost information.Please see the following flow chart for a comparison of the old andimproved processes.

Example 3 Projection of the Impact of High Lapse Rates

FIG. 7 illustrates a prior art high lapse rate process on the left withan improved high lapse rate process according to aspects describedherein on the right. It is known that high lapse rates tend to removethe better risks from a block of life insurance. Life actuaries arefamiliar with the general premise that healthier people lapse (i.e.,surrendering a policy other than by dying) more quickly than lesshealthy people and generally each individual only lapses once. Over timelapse rates deteriorate. People who are healthy enough to easily changelife insurance will take the opportunity to change insurance because itis relatively easy to obtain a different life insurance policy. Peoplewho are not healthy enough to get life insurance elsewhere typicallyremain with their existing policy longer. This means that the peoplethat remain with a policy for a long time are less likely to let thepolicy lapse. After a few years the preferred class is extinct in thatthe healthy people have all moved on to other forms of insurance and theresult is a higher mortality rate. Over time the group is skewed to thelower underwriting classes because they have less incentive oropportunity to leave to find other insurance. However, the improvedmodel allows an actuary to apply lapse rates by underwriting class,retaining the people who are most likely to want to keep coverage byusing lower lapse rates. As with the term conversion experience, thisallows direct calculation of something that is done implicitly today. Astime progresses and the group becomes skewed, the few extra uninsurablepeople in the group can materially change the pricing of the group. Theimproved mortality tables are used to account for this skew over timeand will improve the error margins and estimates used in determiningprice and cost information.

Example 4 Guaranteed Insurability Option Riders

FIG. 8 illustrates a prior art GIO Rider process on the left with animproved GIO Rider process according to aspects described herein on theright. A Guaranteed Insurability Option (GIO) is the right of an insuredto purchase additional coverage at the original rating. Generally, ifthe insured does not buy the additional coverage when it is offered, theinsured cannot take additional coverage at a later point. Alternativeembodiments might allow for the decline of an offered coverage. Someinsureds may plan to buy the rider because they are on a schedule andnot because they are ill; however, if an ill person were offered a riderof this type, it is typically in his or her best interest to acceptadditional coverage.

The current process for pricing these riders generally underestimatesthe cost of the riders because the cost is based on rough data and grossestimates. The improved mortality tables allow for better assumptions tobe made and the ranges and error terms are smaller and in a betteroverall context. This improved model allows a direct calculation ofmortality cost (i.e., present value of the death benefit) by calculatingthe distribution of people for whom this will be a better deal than theywould be offered by later underwriting.

These are only four examples of uses for improved mortality andprogression models as described herein. They demonstrate how an explicitunderstanding of a maturing block of insureds can allow a more detailedrisk assessment for different types of situations. Without this type oftool, rough rules of thumb and/or experience data from the precisesituation are the primary ways to get answers to these tough questions.Neither of these methods is timely or easily applied to new situationsand both are subject to questionable accuracy in many cases.

Aspects described herein may have application to other areas whereselection is only done at the beginning of a process, not done at all,or done to a lesser extent later. Examples might include group life,individual or group health experience, individual or group auto, creditscoring and other areas where the risk assessment changes over time. Inhealth insurance, the person who is sick will tend to keep a policy,stay in richer coverage options or elect COBRA coverage. In group life,people who are not insurable will tend to convert to individual coverageat termination. A current credit score is an indicator of future creditscores, but moves over time. Predicting the distribution of thatmovement may be meaningful to how to grant or restrict credit lines andcharged interest rates.

Although the subject matter has been described in language specific tostructural features and/or methodological acts, it is to be understoodthat the subject matter defined in the appended claims is notnecessarily limited to the specific features or acts described above.Rather, the specific features and acts described above are disclosed asexample forms of implementing the claims.

What is claimed is:
 1. A system comprising: a processor; and memory storing data and computer-executable instructions, which when executed by the processor, cause the system to perform: determining an original distribution of mortality for each of a plurality of underwriting classes of a plurality of people underwritten for a financial product, by analyzing the data stored in the memory; projecting a future distribution of mortality corresponding to each original distribution based on a predetermined set of progression tables that model an expected movement of insureds from one underwriting class to another over time; storing the tables in the memory; analyzing the projected future distributions of mortality to predict a percentage of insureds in each underwriting class likely to accept a product offering associated with the financial product; and generating a cost for the product offering based on the predicted percentages of insureds in each underwriting class likely to accept the product offering.
 2. The system of claim 1, wherein the financial product comprises life insurance.
 3. The system of claim 2, wherein the product offering is guaranteed insurability option rider.
 4. The system of claim 2, wherein the product offering is a term conversion of the life insurance.
 5. One or more non-transitory computer readable storage media comprising instructions that, when executed by a data processing device, predict movement of an insured from one underwriting class to another over time by: identifying an expected mortality based on an underwriting class for people of a same age that have been underwritten within a predetermined time period for a financial product; analyzing actual death claims to identify actual mortality of the people at a predetermined point in the future; determining a difference between the actual mortality at the predetermined point in the future and an expected mortality of a hypothetical underwriting of the people at that predetermined point in the future, wherein a portion of the people have experienced a deterioration in health since original underwriting such that their mortality will be higher at the predetermined point in the future than would otherwise be expected had their health not deteriorated; repeating the identifying, analyzing, and determining steps for each of a plurality of ages, underwriting classes, and for multiple different predetermined points in the future; and creating a plurality of equations, based on the determined differences in mortality, that model the expected movement of insureds from one underwriting class to another over time to explain the observed differences in mortality.
 6. The non-transitory computer readable storage media of claim 5, said instructions further comprising creating one or more progression tables based on the plurality of equations, said progression tables representing the probability of each person moving from an age-underwriting class combination to each any other underwriting class or death at the next age; and applying the progression tables to an initial set of one or more corresponding mortality tables to create a modified set of one or more mortality tables.
 7. The non-transitory computer readable storage media of claim 5, wherein analyzing comprises using an existing select and ultimate mortality table to obtain the actual mortality of the people at the predetermined point in the future.
 8. The non-transitory computer readable storage media of claim 6, wherein a weighted average of mortality based on the progression tables approximates the actual observed mortality for an age-underwriting class combination.
 9. The non-transitory computer readable storage media of claim 5, said instructions further comprising generating a separate progression table for each combination of age and underwriting class based on the plurality of equations.
 10. The non-transitory computer readable storage media of claim 5, wherein the financial product is one of life insurance, accident insurance, disability insurance, and long term care insurance.
 11. The non-transitory computer readable storage media of claim 8, wherein the plurality of predetermined points in the future comprises integer year values based on a date of underwriting.
 12. The non-transitory computer readable storage media of claim 5, said instructions further comprising performing a graduation process to the system of equations.
 13. The non-transitory computer readable storage media of claim 5, said instructions further comprising calculating a cost for a term conversion life insurance product based on the system of equations.
 14. The non-transitory computer readable storage media of claim 5, said instructions further comprising calculating a cost for a guaranteed issue life insurance policy based on the system of equations.
 15. The non-transitory computer readable storage media of claim 5, said instructions further comprising calculating a cost based on a lapse rate using the system of equations.
 16. The non-transitory computer readable storage media of claim 5, said instructions further comprising calculating a cost for a guaranteed insurability option rider using the system of equations.
 17. The non-transitory computer readable storage media of claim 5, wherein the financial product comprises a group life insurance product having a mixture of people in a plurality of underwriting classes.
 18. A special-purpose computer system comprising: a processor; and memory storing computer readable instructions that, when executed by the processor, cause the system to perform: identifying an expected mortality based on an underwriting class for people of a same age that have been underwritten within a predetermined time period for a financial product; analyzing actual death claims to justify actual mortality of the people at a predetermined point in the future; determining the difference between the actual mortality at the predetermined point in the future and an expected mortality of a hypothetical underwriting of the people at that predetermined point in the future, wherein a portion of the people have experienced a deterioration in health since original underwriting such that their mortality will be higher at the predetermined point in the future than would otherwise be expected had their health not deteriorated; repeating the identifying, analyzing, and determining functions for each of a plurality of ages, underwriting classes, and for multiple different predetermined points in the future; and creating a plurality of equations, based on the determined differences in mortality, that model the expected movement of insureds from one underwriting class to another over time to explain the observed differences in mortality.
 19. The system of claim 18, said instructions further comprising creating one or more progression tables based on the plurality of equations, said progression tables representing the probability of each person moving from an age-underwriting class combination to each any other underwriting class or death at the next age; and applying the progression tables to an initial set of one or more corresponding mortality tables to create a modified set of one or more mortality tables.
 20. The system of claim 18, wherein the system analysis comprises using an existing select and ultimate mortality table to obtain the actual mortality of the people at the predetermined point in the future.
 21. The system of claim 19, further storing computer readable instructions that, when executed by the processor, cause the system to perform generating a cost for a life insurance product based on the progression tables. 